Earnin's early wage access tries to outflank bank fees

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While most companies that offer early access to wages sell to employers, Earnin is providing direct access to workers in an attempt to mitigate overdrafts and subsequent bank charges.

Earnin asks consumers to download its app, fill out details about their employer, work location, pay rate, etc., along with linking a checking account that has direct deposit tied to it. This will allow a consumer to ask for an advance on their earned, but not yet paid wages in between pay periods of up to $100 for each day worked and a maximum of $500, net of taxes and other deductions.

As more consumers struggle to survive paycheck-to-paycheck, demand is growing for accessing earned, but not yet paid wages in between paydays, also known as earned wage access or EWA.

Companies in what's called the earned wage access business, such as PayActiv or Ceridian, offer products for employers. Earnin does not integrate with the employer, but instead relies on a tipping model.

Earnin does not charge fees. A consumer pays what they feel is an appropriate amount, if they choose to pay anything at all. The consumer can also pay a “tip forward” for the next person who wants to get early access to their wages.

"Most people do tip. It’s like going to a restaurant and tipping. We have a tip wheel that helps people decide on an amount. Generally the tip amount ends up being less than an ATM fee.”

said Ratesh Dhir, head of Earnin’s B2B program.

Advanced wages can get deposited into a customer’s bank account via ACH or it can be pushed onto a debit card through Visa Direct. Earnin will request the funds from the consumer’s bank account on the payday for the exact amount that was paid out, along with the tip.

“It’s an opportunity for the consumer to have some control over their pay,” said payments consultant Richard Crone, adding providing alternatives to bank overdraft fees has become a major lure for fintechs. “There is stiff competition here from [EWA] companies such as PayActiv and DailyPay, as well as challenger banks such as Chime, who are also giving consumers early wage access to get them to sign up for an account. For Earnin, it’s really a question if they can build a whole franchise on a single product feature.”

Despite the competition from challenger banks and EWA providers, there is a massive opportunity for consumers to be able to claw back some of the $11.68 billion in overdraft and not-sufficient-funds fees paid out last year to major banks according to the Center for Responsible Lending. The $11.68 billion does not include overdraft fees paid out to small banks or credit unions, so the opportunity is even larger. EWA companies are also providing consumers with an alternative to payday lenders who tend to charge exorbitant fees for short-term loans.

Earnin’s advance is not a loan since it is a non-recourse product, according to Dhir. If a consumer fails to repay the advance given, then he or she can no longer borrow on the platform. This is an important distinction as Dhir noted payday loans can often send the consumer into a growing debt spiral due to their nature to entrap the consumer.

“The industry that will go out of business as a result of the growth of earned wage access, or at least shrink significantly, is the payday loan business. It is a real plus for the consumer,” said Lillian Roberts, founder and CEO at Xendoo, an online bookkeeping and accounting platform for small businesses.

Instead of timesheets, Earnin uses Automagic, an app that uses GPS and geofencing to track when an employee is at work. "We can use GPS to geofence the worker since they’ve given us their work location," Dhir said. "That way we know how much time they spend at their employer.”

Earnin was founded in 2012 as a means to help people gain access to their wages in between pay periods, and reports its app has been downloaded more than 10 million times. the tip forward feature has resulted in more than 25 million "thank you" notes, Dhir said.

As a result of the coronavirus shutdowns, Earnin has developed two new features for the app, one that supports work from home; and another that provides early access to unemployment benefits.

Earnin has raised more than $190 million in venture capital funds over four rounds since 2014 according to Crunchbase, a website that tracks investments into private companies. One notable investor in Earnin is legendary venture capitalist Andreesen Horowitz which participated in the Series B and C rounds. Andreessen has been an early investor in successful companies such as Facebook, Instagram (acquired by Facebook), Slack, Box and Twilio.

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